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It's time for meme shares again – here's what we need to know

16.05.2024 8:30 2 min reading
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It's time for meme shares again – here's what we need to know

The resurgence of meme stocks has rocked Wall Street again, marking a familiar trend since the meteoric rise of retail investors in the market three years ago.

This time around, however, the landscape looks more familiar, with Wall Street better prepared to deal with volatility, experts say.

GameStop, the pioneer of meme stocks, experienced a sudden and significant surge, with its shares jumping 60.1% on Tuesday after a 74% gain the previous day. Similar radical moves were seen in other pandemic-era meme stocks, such as AMC Entertainment, which jumped 32% on Tuesday. On Wednesday, GameStop's stock price fell more than 30%.

Financial analysts and professional investors focused on metrics like earnings and cash flow question the rapid rise of these stocks. Although GameStop's financial fundamentals remained intact, the stock price jumped due to a burst of momentum from buyers.

The catalyst for this momentum may have been a meme posted by a social media user known as Roaring Kitty recalling the events that led to GameStop's spike in early 2021. The ease of trading facilitated by commission-free platforms hastened the reactions of market, with trading halts occurring repeatedly due to sharp price swings. On Tuesday, for example, trading was suspended 34 times.

While the meme stock craze mirrors that of 2021, there are some differences. These companies now have more shares trading in the market, potentially reducing the likelihood of a short squeeze, where short sellers rush to cover their positions, further pushing prices higher.

Investors considering joining the meme craze should be aware of the risks. Quick changes in momentum mean that gains can quickly evaporate, as seen in GameStop's share price plunging from over $64 to $48,75 in a single day.

Similarly, AMC shares, which briefly hit $390 in 2021, fell to below $3 before rebounding to around $7.

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